If I understand correctly, the car is being raffled off through a non-profit organization. If the organization is tax exempt, meaning it is a 501(c) 3 corporation under the U.S. tax code? If so, the following will apply.

For noncash prizes, the winner must pay the organization 25% of the fair market value of the prize minus the amount of the wager.

Example:

Person A purchases a $1 raffle ticket, and Person A wins a car worth $10,000 (fair market value). Because the prize exceeds $5,000 and the fair market value of the car is $10,000, the tax on the fair market value of the prize is $2,499.75 ($10,000 minus $1.00(ticket cost) x 25%). Person A must pay $2,499.75 to the organization that they won the prize from to remit to the IRS on Person A's behalf. To determine the withholding tax amount, take the FMV of the vehicle ($21,000 FMV, then subtract the amount of the raffle ticket cost from the $21,000 and multiply the result by 25%.

On the other hand if the organization raffling off the prize pays the withholding tax as part of the prize, the organization must pay tax not only on the fair market value of the prize less the wage, but also on the taxes it pays on behalf of the winner. The organization must pay withholding tax of 33.33% of the prize's fair market value.

For further information you can refer to the IRS Notice 1340 Tax-Exempt Organizations and Raffle Prizes.

In the state of Iowa, a vehicle purchased for use as a prize is not subject to Iowa sales tax. The winner of the vehicle is not obligated to pay the sales tax either. Also upon showing proof to the County Treasurer that the vehicle was won, the one time registration fee will not be charged. For more information regarding Iowa state taxes, you can refer to the Iowa Department of Revenue.

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. OrvilleHesperia, California

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